If Sustainability Is Expensive, What Roles for Business and Government? A Case Study of GHG Reduction Policy in Canada

Much has been said and written about a new business ethic of sustainability in which corporations voluntarily assume responsibility for shifting our economy to a trajectory that has lower environmental impacts and less environmental risks. As a basic principle, this is easy to agree with. Businesses can and should do more.

But what does this mean for public policy? Should government simply step aside, becoming in essence a facilitator, information provider and cheerleader? More specifically, what does this mean when shifting to a more sustainable trajectory is costly? Can and should we rely on business to lead the way? What should be the role of government? What should be the policy position of corporate leaders?

In 1992, the Canadian government signed the United Nations Framework Convention on Climate Change and set a target to reduce Canada's greenhouse gas (GHG) emissions back to their 1990 levels by the year 2000. To this end, the federal government launched in 1993 the National Action Program on Climate Change, which included the Voluntary Challenge and Registry (VCR). Corporations in the VCR were asked to submit an action plan for GHG reduction and provide regular progress reports, all on a voluntary basis. By 2000, the VCR had 757 action plans from firms covering more than 50% of industrial GHG emissions.

The impact of the VCR on GHG-related business decisions is in dispute. During the period 1993--2000, emissions of several industrial sectors increased only marginally, although those of the fossil fuel production and electricity generation sectors grew significantly. In a recent report, the Analysis and Modelling Group (1999, 43)--an entity of the National Climate Change Process created in 1998--estimated that the VCR and related initiatives had reduced national GHG emissions by 35 megatonnes (Mt) of carbon dioxide equivalent [(C[O.sub.2]e).sup.2] from what they otherwise would have been on an annual basis over the period 1993--98 (a 5% decrease). The method used to estimate this effect was not explained. In contrast, the Pembina Institute (Bramley, 2002) suggested that the VCR had little effect, a conclusion based on the evolution of aggregate industrial emissions (24% increase in the period 1990-2000), lack of program coverage (less than 55% of total industrial emissions), and case studies of the target setting and emission accounting practices of some individual firms.

In addition to the VCR, the National Action Program on Climate Change included a package of voluntary GHG reduction programs directed at providing information and inducements to consumers and businesses. While these programs have not been assessed for their individual impacts, the national GHG trend has not been encouraging. Figure 1 shows that from 1990 to 1999, Canada's total C[O.sub.2]e emissions grew by 20%, from 607 to 726 C[O.sub.2]e (Environment Canada, 1999; Environment Canada 2002). Ironically, even though there were no voluntary GHG reduction programs in the previous decade, GHG emissions grew by only 6% between 1980 and 1990. The dramatic increase in the period 1990--2000 was driven in part by the preference of consumers for less efficient vehicles and greater vehicle use. But it was also caused by corporate investment decisions resulting in substantial expansion of the oil and gas sector, a greater use of fossil fuels in electricity generation, stable or slightly increasing emissions in some other industrial sectors, and massive marketing expenditures to promote energy intensive products such as sport utility vehicles.

More recently, Canada negotiated in 1997 a Kyoto Protocol target of reducing national emissions by 2010 to 6% below their 1990 level. Current projections, however, anticipate emissions in 2010 at about 240 MT above this target (Figure 1), meaning that a reduction of 30% from the business-as-usual trend is required within less than 10 years (Government of Canada, 2002). …

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